ITR filing: When comes to choosing appropriate tax regime for tax calculation, Old Tax Regime is still preferred by many. Old Tax Regime offers various deductions that can help taxpayers save more taxes. The deduction under section 80C of the Income Tax Act is a tax-saving provision that is available exclusively to individuals and Hindu Undivided Families (HUFs).
Under Section 80C of the Income-tax Act, 1961, taxpayers can avail deductions on various savings and investments including but not limited to LIC, PPF, Employees’ contributions to RPF/Superannuation Fund, and more. The maximum deduction limit under Section 80C is Rs 1,50,000 per annum. This deduction covers a range of eligible investments such as 5-year fixed deposits, Equity Linked Savings Scheme (ELSS), principal repayment on housing loan, life insurance, Sukanya Samriddhi Yojana, provident fund contributions, and others.
Section 80C has seen a significant surge in popularity as individuals become more informed and proactive in utilising eligible investment instruments for tax benefits.
Why the limit should be raised
There has been a longstanding anticipation among taxpayers for an upward revision of this limit, considering the escalating cost of living and retail inflation. To align with current inflation, many argue that the practical limit for Section 80C should be increased to Rs 3 lakh.
The limit was raised in 2014 during the tenure of Finance Minister Arun Jaitley. This adjustment was a significant form of relief implemented by the government in its initial budget. However, following this change, there have been no further modifications to the 80C limit.
Mitesh Jain, Partner at Economic Laws Practice, highlighted the need for an increase, stating, “The maximum deduction under Section 80C has been capped at Rs 1.5 lakh since the first budget of the BJP government post-election in 2014. Enhancing the 80C limit would encourage greater savings and investments, provide additional tax relief, and better align with inflationary trends over the past decade.”
Revision to the Section 80C deduction cap directly affects an individual’s taxable income and consequent tax liability. With the cost of living rising and salaries increasing, the current Section 80C benefit has not kept pace, causing many taxpayers to exhaust the limit swiftly. Consequently, increasing the Section 80C limit is a key expectation among taxpayers leading up to the Union Budget 2024.
By acknowledging and addressing these expectations in the forthcoming budget, the government could offer substantial relief to taxpayers and encourage greater engagement in tax-saving instruments under Section 80C. This, in turn, may boost overall tax compliance and economic activity.
Changes in tax slabs
Another top demand is changes in the tax slabs of the Old Tax Regime. The tax slabs in the Old Tax Regime were established by former Prime Minister Pranab Mukherjee through the Finance Act of 2013. Initially set at Rs 2 lakh, the basic exemption limit was later raised to Rs 2.5 lakh in 2015 and has remained unchanged since. Subsequently, in 2018, the tax rate for the income range between Rs 2.5 and Rs 5 lakh was decreased from 10% to 5%. Furthermore, in the interim Finance Act of 2019 (No. 1), a rebate of Rs 12,500 was introduced for individuals with a total taxable income up to Rs 5 lakh, eliminating income tax liability for those within this bracket. However, should their taxable income exceed Rs 5 lakh, their tax liability would increase by Rs 13,000, inclusive of tax cess.